RBI proposes new capital rules for D-SIBs (banks too-big-to-fail)

To safeguard the financial system from any possible crisis situation where large financial institutions faltered due to loss of confidence in the financial system, the Reserve Bank of India (RBI) released the draft report to introduce increased capital requirements by 2016 for banks regarded as too big to fail and make them subject to greater regulatory oversight.

Key Elements of the RBI Report on D-SIBs (banks too-big-to-fail)

It outlines the methodology to be adopted for identifying the D-SIBs and regulatory policies for them.

The sample of banks for D-SIBs will be selected when its’ size is more than 2 % of GDP .

Banks classified as systemically important will be required to hold additional capital in the range of 0.2 % to 1 % of their risk weighted assets.

The banks designated as D-SIBs will be subjected to more intense supervision in the form of higher frequency and higher intensity of off- and on-site monitoring.

A D-SIB in lower bucket will attract lower capital charge and a D-SIB in higher bucket will attract higher capital charge.

Large banks such as the State Bank of India, ICICI Bank, HDFC Bank, Canara Bank and Punjab National Bank were likely to fall under this category of systemically important banks (D-SIBs) or too large to fail.

Domestic systemically important banks (D-SIBs)

These are large and highly interconnected financial institutions—whose failures failure might trigger a financial crisis or can impact the orderly functioning of the financial system and harm the economy.